Biohaven Ltd. (BHVN) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K, or this Annual Report. Discussions of 2022 items and year-to-year comparisons between the years ended December 31, 2023 and 2022 that are not included in this Form 10-K can be found within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Annual Report.
Overview
We are a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. We are advancing our innovative portfolio of therapeutics, leveraging our proven drug development experience and multiple proprietary drug development platforms. Our extensive clinical and preclinical programs include Kv7 ion channel modulation for epilepsy and mood disorders; extracellular protein degradation for immunological diseases; TRPM3 antagonism for migraine and neuropathic pain; TYK2/JAK1 inhibition for neuroinflammatory disorders; glutamate modulation for OCD and SCA; myostatin inhibition for neuromuscular and metabolic diseases, including SMA and obesity; and antibody recruiting bispecific molecules and ADCs for cancer.
For a full discussion of our programs, including recent developments, refer to "Item 1. Business" included in this Annual Report on Form 10-K.
Separation from Biohaven Pharmaceutical Holding Company Ltd.
On October 3, 2022, the Former Parent completed the Separation from Biohaven Ltd. As a result of the Separation, Biohaven Ltd. became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol "BHVN" on the NYSE on October 4, 2022.
Biohaven is a British Virgin Islands ("BVI") corporation and was a wholly owned subsidiary of the Former Parent prior to the Separation.
Prior to the Separation, the historical combined financial statements of the Company were prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of the Former Parent. The financial statements for all periods presented, including the historical results of the Company prior to October 3, 2022, are now referred to as "Consolidated Financial Statements." Our financial statements are presented in conformity with generally accepted accounting principles in the United States ("GAAP").
The financial position, results of operations and cash flows of the Company historically operated as part of the Former Parent’s financial position, results of operations and cash flows up until the Distribution. These historical combined financial statements may not be indicative of the future performance of the Company and do not necessarily reflect what our consolidated results of operations, financial condition and cash flows would have been had we operated as a separate, publicly traded company during the periods presented.
Where we describe historical business activities in this Annual Report on Form 10-K, we do so as if these transfers had already occurred and the Former Parent's activities related to such assets and liabilities had been performed by Biohaven.
Refer to Note 1, "Nature of the Business and Basis of Presentation," of the Notes to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K for further discussion of the underlying basis used to prepare the consolidated financial statements.
Transition from the Former Parent and Costs to Operate as an Independent Company
The consolidated financial statements reflect the operating results and financial position of the Company as it was operated by the Former Parent prior to the Separation, rather than as an independent company. We have incurred and will continue to incur ongoing operating expenses to operate as an independent company. These costs will include the cost of various corporate headquarters functions, information technology-related costs and costs to operate stand-alone accounting, legal and other administrative functions. We will also incur non-recurring expenses and non-recurring capital expenditures. As an independent company, our information technology operating costs may be higher than the costs allocated in the historical combined financial statements. It is not practicable to estimate the costs that would have been incurred in each of the periods presented in the historical combined financial statements for the functions described
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above. Actual costs that would have been incurred if we operated as a stand-alone company during these periods would have depended on various factors, including the chosen organizational structure, what corporate functions the Company might have performed directly or outsourced and strategic decisions the Company might have made in areas such as executive management, legal and other professional services, and certain corporate overhead functions.
Agreements with the Former Parent
We had entered into a Distribution Agreement and various other agreements relating to transition services, licenses and certain other matters with the Former Parent. These agreements govern our relationship with the Former Parent and include the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to, at and after the Separation. For additional information regarding these agreements, see Note 13, "Related Party Transactions," of the Notes to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K.
Recent Developments
The following is a summary of key developments affecting our business in 2024 (excluding updates to our programs, which are discussed in "Item 1. Business" included in this Annual Report on Form 10-K):
Amendment to Knopp Purchase Agreement
In May 2024, we entered into an amendment to the Purchase Agreement with Knopp (the “Knopp Amendment”). Under the Knopp Amendment, the parties thereto agreed to replace the scaled high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for BHV-7000 and the pipeline programs. The parties also agreed to reduce the success-based payments payable under the Purchase Agreement by removing all commercial sales-based milestones, which were up to $562.5 million, and reducing the developmental and regulatory milestones, which were up to $575 million, to up to $210 million based on regulatory approvals in the United States and EMEA for BHV-7000 ($25 million of which has already been paid) and up to an additional $60 million based on regulatory approval in the United States for the other Kv7 pipeline programs. We retain the ability to pay these contingent milestone payments in cash or in Biohaven Shares at our election.
In consideration of the revisions to the success-based payment and royalty payment obligations, we agreed to issue to Knopp 1,872,874 Biohaven Shares, valued at approximately $75 million, through a private placement within 60 days of the date of execution of the Knopp Amendment (the “2024 Additional Consideration”) and additional Biohaven Shares with an approximate value of $75 million within 60 days of the first anniversary of execution of the Knopp Amendment (the “2025 Additional Consideration”). We also gave Knopp the option to request a one-time cash true-up payment from us in December 2024 in the event that Knopp continued to hold the Biohaven Shares representing the 2024 Additional Consideration and the value of such shares has declined, and a one-time cash true-up payment from us in December 2025 in the event that Knopp continues to hold the Biohaven Shares representing the 2025 Additional Consideration and the value of such shares has declined, in each case, subject to certain conditions. In May 2024, we issued the 2024 Additional Consideration at an approximate value of $66.0 million and the December 2024 cash true-up payment right subsequently expired.
As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, we issued to Knopp a warrant (the “Warrant”) to purchase 294,195 Biohaven Shares at a purchase price per share of $67.98, subject to certain specified development milestones and the Company achieving a specified market capitalization.
For further discussion of the Knopp Amendment, refer to Note 4, "Fair Value of Financial Assets and Liabilities", Note 6, "Shareholders' Equity, " and Note 10, " License, Acquisitions and Other Agreements" to the accompanying consolidated financial statements included in this Form 10-K.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties, then we may generate revenue in the future from product sales.
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Operating Expenses
Research and Development Expenses
Research and development ("R&D") expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include:
•expenses incurred under agreements with contract research organizations (“CROs”) or contract manufacturing organizations (“CMOs”), as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
•manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;
•employee-related expenses, including salaries, benefits, travel and non-cash share-based compensation expense for employees engaged in research and development functions;
•costs related to compliance with regulatory requirements;
•development milestone payments incurred prior to regulatory approval of the product candidate;
•rent and operating expenses incurred for leased lab facilities and equipment; and
•payments made in cash, equity securities or other forms of consideration under third-party licensing or other agreements prior to regulatory approval of the product candidate.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using estimates from our clinical personnel and information provided to us by our service providers.
Our external direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees and certain development milestones incurred under license agreements. We do not allocate employee costs, or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and development as well as for managing our preclinical development, process development, manufacturing and clinical development activities.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will remain significant over the next several years as we increase personnel costs, conduct late-stage clinical trials, and prepare regulatory filings for our product candidates. We also expect to incur additional expenses related to milestones payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates.
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
•the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;
•establishment of an appropriate safety profile with IND-enabling studies;
•successful patient enrollment in, and the initiation and completion of, clinical trials;
•the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
•establishment of commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
•acquisition, maintenance, defense and enforcement of patent claims and other intellectual property rights;
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•significant and changing government regulation;
•initiation of commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
•maintenance of a continued acceptable safety profile of the product candidates following approval.
General and Administrative Expenses
General and administrative ("G&A") expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for our executive, finance, business, corporate development and other administrative functions; and non-cash share-based compensation expense. General and administrative expenses also include facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies; and for public relations, audit, tax and legal services, including legal expenses to pursue patent protection of our intellectual property.
We anticipate that our general and administrative expenses, including payroll and related expenses, will remain significant in the future as we continue to support our research and development activities and prepare for potential commercialization of our product candidates, if successfully developed and approved. We also anticipate increased expenses associated with general operations, including costs related to accounting and legal services, director and officer insurance premiums, facilities and other corporate infrastructure, and office-related costs, such as information technology costs, and certain costs to establish ourself as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company.
Other Income (Expense)
Other Income (Expense), Net
Other income (expense), net during the year ended December 31, 2024 primarily consists of changes in the fair value of our forward contract and derivative liabilities and net investment income.
The fair value of the forward contracts and derivative liabilities recognized in connection with the Knopp Amendment are determined using a Monte Carlo simulation of the Company's stock price over the respective duration and terms of each instrument being valued. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" to the accompanying consolidated financial statements included in this Form 10-K for detail on valuation inputs and methodology. The fair value of these liabilities are recorded on the consolidated balanced sheets with changes in fair value recorded in other income (expense), net in the consolidated statements of operations.
Net investment income is comprised of interest income and net accretion and amortization on investments in addition to realized gains and losses. Refer to Note 3, "Marketable Securities," for further discussion of our investments.
Other income (expense), net during the year ended December 31, 2023 primarily consisted of net investment income and service revenue from the Transition Service Agreement we entered into with the Former Parent. Refer to Note 13, "Related Party Transactions," for further discussions of agreements entered into with the Former Parent.
Provision (Benefit) for Income Taxes
As a company incorporated in the BVI, we are principally subject to taxation in the BVI. Under the current laws of the BVI, the Company and all dividends, interest, rents, royalties, compensation and other amounts paid by the Company to persons who are not resident in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of the Company by persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI.
We have historically outsourced all of the research and clinical development for our programs under a master services agreement with Biohaven Pharmaceuticals, Inc. ("BPI"). As a result of providing services under this agreement, BPI was profitable during the years ended December 31, 2024, 2023, and 2022. A similar arrangement is also in place for our subsidiary, Biohaven Biosciences Ireland Limited ("BBIL"). Both Companies are subject to taxation in the United States and Ireland, respectively. As such, in each reporting period, the tax provision includes the effects of the results of operations of BPI and BBIL.
At December 31, 2024 and 2023, we continued to maintain a full valuation allowance against our net deferred tax assets, comprised primarily of research and development tax credit carryforwards, and net operating loss carryforwards, based on management’s assessment that it is more likely than not that the deferred tax assets will not be realized.
Our income tax provision (benefit) primarily relates to the profitable operations of our subsidiaries in the United States and Ireland.
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Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| In thousands | 2024 | 2023 | Change | ||||||||
| Operating expenses: | |||||||||||
| Research and development | $ | 795,871 | $ | 373,281 | $ | 422,590 | |||||
| General and administrative | 89,240 | 62,770 | 26,470 | ||||||||
| Total operating expenses | 885,111 | 436,051 | 449,060 | ||||||||
| Loss from operations | (885,111) | (436,051) | (449,060) | ||||||||
| Other income, net: | |||||||||||
| Other income, net | 39,424 | 26,500 | 12,924 | ||||||||
| Total other income, net | 39,424 | 26,500 | 12,924 | ||||||||
| Loss before provision (benefit) for income taxes | (845,687) | (409,551) | (436,136) | ||||||||
| Provision (benefit) for income taxes | 735 | (1,383) | 2,118 | ||||||||
| Net loss | $ | (846,422) | $ | (408,168) | $ | (438,254) |
Research and Development Expenses
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| In thousands | 2024 | 2023* | Change | ||||||||
| Direct research and development expenses by program: | |||||||||||
| BHV-4157 (Troriluzole) | $ | 63,983 | $ | 73,080 | $ | (9,097) | |||||
| BHV-2000 (Taldefgrobep Alfa) | 59,710 | 40,870 | 18,840 | ||||||||
| BHV-7000 & BHV-7010 (Kv7) | 136,422 | 47,327 | 89,095 | ||||||||
| BHV-2100 (TRPM3) | 29,044 | 12,865 | 16,179 | ||||||||
| BHV-8000 (TYK2/JAK1) | 12,697 | 39,025 | * | (26,328) | |||||||
| BHV-1300 (IgG Degrader) | 30,078 | 22,239 | 7,839 | ||||||||
| BHV-1310 (IgG Degrader) | 13,341 | 1,962 | 11,379 | ||||||||
| BHV-1400 (IgA Degrader) | 19,572 | 1,810 | 17,762 | ||||||||
| BHV-1600 (β1-AR AAB Degrader) | 14,650 | 254 | 14,396 | ||||||||
| BHV-1510 (Trop2) | 28,540 | — | 28,540 | ||||||||
| BHV-1530 (FGFR3) | 14,554 | — | 14,554 | ||||||||
| Knopp amendment expense | 171,850 | — | 171,850 | ||||||||
| Other programs | 2,821 | 5,615 | (2,794) | ||||||||
| Unallocated research and development costs: | |||||||||||
| Personnel related (including non-cash share-based compensation) | 116,238 | 76,043 | 40,195 | ||||||||
| Preclinical research programs | 57,181 | 35,911 | 21,270 | ||||||||
| Other | 25,190 | 16,280 | 8,910 | ||||||||
| Total research and development expenses | $ | 795,871 | $ | 373,281 | $ | 422,590 |
*Certain prior year amounts have been reclassified to conform to current year presentation
R&D expenses, including non-cash share-based compensation costs, were $795.9 million for the year ended December 31, 2024, compared to $373.3 million for the year ended December 31, 2023. The increase of $422.6 million was largely due to non-cash expense of $171.9 million paid to Knopp for a milestone and royalty buyback related to the BHV-7000 and broader Kv7 platform that was recognized during the three months ended June 30, 2024 (the buyback reduced our potential future milestone payments by $867.5 million, and replaced the scaled high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for the Kv7 programs). See further discussion of the Knopp Amendment included in Note 10, "License, Acquisitions and Other Agreements" to the
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consolidated financial statements included in this Form 10-K. The increase in expense was also related to advancing our clinical platforms including four phase 3 starts and one phase 2 start for BHV-7000, follow-on Kv7 assets, preclinical research programs, and increases in direct program spend for additional and advancing multiple clinical development programs in 2024, as compared to the same period in the prior year. The increase was also due to a $40.2 million increase in personnel costs, primarily due to increased non-cash share based compensation expense and increased headcount to support our expanding clinical and preclinical research programs. The $28.5 million increase in expense for BHV-1510 was primarily due to the Pyramid Acquisition, which resulted in $10.9 million non-cash of expense recorded to R&D during the year ended December 31, 2024, a $1.5 million milestone payment which became due during the first quarter of 2024, and a $5.7 million non-cash milestone payment which became due during the first quarter of 2024. The $14.6 million increase in BHV-1530 was related to an upfront cash payment of $6.0 million and non-cash issuance of common shares valued at $8.6 million issuable to GeneQuantum and Aimed Bio for a development and license agreement entered into in the fourth quarter of 2024. These increases were partially offset by a decrease of $26.3 million related to BHV-8000, primarily due to one-time expenses of $31.8 million to acquire rights related to our Highlightll Agreement incurred during the year ended December 31, 2023. Refer to Note 10, "License, Acquisitions and Other Agreements" to the consolidated financial statements included in this Form 10-K for further discussion of the Highlightll Agreement.
Non-cash share-based compensation expense was $42.6 million for the year ended December 31, 2024, an increase of $26.6 million as compared to the same period in 2023. Non-cash share-based compensation expense was higher in the year ended December 31, 2024 primarily due to our annual equity incentive awards granted in the fourth quarter of 2023 and first quarter of 2024.
General and Administrative Expenses
G&A expenses, including non-cash share-based compensation costs, were $89.2 million for the year ended December 31, 2024, compared to $62.8 million for the year ended December 31, 2023. The increase of $26.5 million was primarily due to increased non-cash share-based compensation costs and increased legal costs.
Non-cash share-based compensation expense was $29.4 million for the year ended December 31, 2024, an increase of $16.6 million as compared to the same period in 2023. Non-cash share-based compensation expense was higher in 2024 primarily due to our annual equity incentive awards being partially granted in the fourth quarter of 2023 with a greater portion granted in the first quarter of 2024, partially offset by the subsequent year annual equity incentive awards being granted in the first quarter of 2025 and no partial grants from such annual equity incentive awards in the fourth quarter of 2024.
Other Income (Expense), Net
Other income (expense), net was other income of $39.4 million for the year ended December 31, 2024, compared to other income, net of $26.5 million for the year ended December 31, 2023. The increase of $12.9 million in other income (expense), net was primarily related to non-cash changes in the fair value of our forward contract and derivative liabilities recorded in connection with the Knopp Amendment of $17.8 million as well as increased investment income. The increases were partially offset by a decrease of $9.2 million in other income recognized during the year ended December 31, 2024 as compared to the same period in 2023 related to the Transition Services Agreement entered into with the Former Parent. See Note 4, "Fair Value of Financial Assets and Liabilities" and Note 10, "License, Acquisitions and Other Agreements" to the accompanying consolidated financial statements included in this Form 10-K for discussion of the forward contract and derivative liabilities recorded in connection with the Knopp Amendment.
Provision (Benefit) for Income Taxes
We recorded a provision for income taxes of $0.7 million for the year ended December 31, 2024, compared to a benefit for income taxes of $1.4 million for the year ended December 31, 2023. The change in income tax expense for the for the year ended December 31, 2024 as compared to 2023 was primarily attributable to our adoption of the guidance contained in a Notice of Proposed Rule Making issued during the third quarter of 2023 by the United States Internal Revenue Service ("the Notice").
Liquidity and Capital Resources
Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from operations. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval and pursue commercialization of any approved product candidate. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, regulatory and commercial milestones and royalty payments. In addition, we may incur expenses in connection with the in-license or acquisition of additional product candidates.
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Through March 3, 2025, we have funded our operations primarily with funding from the Former Parent, proceeds from the sale of its common shares, and the cash contribution received from the Former Parent at the Separation. The Company has incurred recurring losses since its inception and expects to continue to generate operating losses for the foreseeable future.
As of December 31, 2024, we had cash and cash equivalents of $99.1 million and marketable securities of $386.9 million. Cash in excess of immediate requirements is invested in marketable securities and money market funds with a view to liquidity and capital preservation. We continuously assess our working capital needs, capital expenditure requirements, and future investments or acquisitions.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| In thousands | 2024 | 2023 | |||||
| Net cash used in operating activities | $ | (582,453) | $ | (331,725) | |||
| Net cash (used in) provided by investing activities | (244,974) | 129,830 | |||||
| Net cash provided by financing activities | 677,774 | 211,908 | |||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | 75 | (497) | |||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (149,578) | $ | 9,516 |
Operating Activities
Net cash used in operating activities was $582.5 million in 2024 and $331.7 million in 2023. The $250.7 million increase in net cash used in operating activities in 2024 was driven primarily by an increase in R&D spending to advance our clinical platforms including four Phase 3 starts and one Phase 2 start for BHV-7000, follow-on Kv7 assets, preclinical research programs, and increases in direct program spend for additional and advancing multiple clinical development programs in 2024, as compared to the prior year. The increase in net cash used in operating activities in 2024 was also due to an increase in personnel costs primarily due to increased headcount to support our expanding clinical and preclinical research programs and an increase in legal costs. The increases in costs were partially offset by an increase in investment income.
Investing Activities
Net cash used in investing activities was $245.0 million in 2024, and net cash provided by investing activities was $129.8 million in 2023. The $374.8 million increase in net cash used in investing activities in 2024 was driven primarily by an increase in purchases of marketable securities with cash in excess of immediate requirements, partially offset by an increase in maturities of marketable securities (see Note 3, "Marketable Securities," to the Consolidated Financial Statements), as compared to the prior year.
Financing Activities
Net cash provided by financing activities was $677.8 million in 2024 and $211.9 million in 2023. The $465.9 million increase in net cash provided by financing activities in 2024 was driven primarily by an increase in proceeds from the issuance of common shares from our April 2024 and October 2024 public equity offerings and at-the-market sales of common shares in connection with our Equity Distribution Agreement in 2024, as compared to the prior year.
2024 Public Offerings
On April 22, 2024, we closed an underwritten public offering of 6,451,220 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at the price of $41.00 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by us, were approximately $247.8 million. We intend to use the net proceeds received from the offering for general corporate purposes.
On October 2, 2024, we closed an underwritten public offering of 6,052,631 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price of $47.50 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by us, were approximately $269.9 million. We intend to use the net proceeds received from the offering for general corporate purposes.
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Equity Distribution Agreement
In October 2023, we entered into an equity distribution agreement pursuant to which we may offer and sell common shares having an aggregate offering price of up to $150.0 million from time to time through or to the sales agent, acting as our agent or principal (the "Equity Distribution Agreement"). Sales of our common shares, if any, will be made in sales deemed to be “at-the-market offerings”. The sales agent is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and us. We currently plan to use the net proceeds from any at-the-market offerings of our common shares for general corporate purposes.
In August 2024, we entered into an Amendment to the Equity Distribution Agreement pursuant to which we may offer and sell common shares having an aggregate offering price of up to $450.0 million from time to time through or to the sales agent, acting as its agent or principal.
As of December 31, 2024, we sold and issued 4,248,588 common shares under the Equity Distribution Agreement, as amended, for total net proceeds of approximately $146.3 million. As of December 31, 2024, additional common shares having an aggregate offering price of up to $300.0 million remain available to be issued.
Knopp Amendment
In May 2024, we entered into the Knopp Amendment which reduced our milestone payments by $867.5 million and replaced the high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for our Kv7 programs. As consideration, we agreed to issue to Knopp the 2024 Additional Consideration and 2025 Additional Consideration, both non-cash common share payments, as well as agreed to one-time cash true-ups for both the 2024 Additional Consideration and 2025 Additional Consideration.
On May 30, 2024, we issued 1,872,874 common shares valued at $66.0 million to Knopp to settle the forward contract liability related to the 2024 Additional Consideration and recognized a non-cash gain of $9.2 million on settlement. In addition, the 2024 Additional Consideration True-up was considered settled as of December 2024, with no cash payment due upon expiration. The Company recognized a gain related to the 2024 Additional Consideration True-Up of $15.5 million. We expect to issue the common shares representing the 2025 Additional Consideration on or before June 30, 2025, in accordance with the Knopp amendment.
In the event that Knopp continues to hold the shares of our common shares representing the 2025 Additional Consideration on December 1, 2025 and the Market Price declines relative to the respective Reference Price, both as defined in the agreement, we would be responsible for a cash payment equal to the difference.
Knopp Warrant
As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, we issued to Knopp a warrant to purchase 294,195 of our common shares with a purchase price of $67.98, subject to certain specified development milestones and the Company achieving a specified market capitalization.
As of December 31, 2024, the vesting conditions have not been met and the warrant is still outstanding.
2023 Public Offering
In October 2023, the Company completed an underwritten public offering of 11,761,363 of its common shares, including the exercise in full of the underwriters' option to purchase additional common shares, at a price to the public of $22.00 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by the Company, were approximately $242.4 million, which are being used for general corporate purposes.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we advance and expand preclinical activities, clinical trials and potential commercialization of our product candidates. Our costs will also increase as we:
•continue to advance and expand the development of our discovery programs and clinical-stage assets;
•continue to initiate and progress other supporting studies required for regulatory approval of our product candidates, including long-term safety studies, drug-drug interaction studies, preclinical toxicology and carcinogenicity studies;
•initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue;
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•continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies;
•continue to develop, maintain, expand and protect our intellectual property portfolio;
•pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials;
•establish and support our sales, marketing and distribution infrastructure to commercialize any future product candidates for which we may obtain marketing approval; and
•hire additional clinical, medical, commercial, and development personnel.
We expect that our cash, cash equivalents and marketable securities, as of the date of this Annual Report on Form 10-K, will be sufficient to fund operating and financial commitments, and other cash requirements for at least one year after the issuance date of these financial statements.To execute our business plans, we will require funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales or royalties, if ever, we expect to finance our operations through the sale of public or private equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of our shareholders. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.
We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect that we will require additional capital to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for our product candidates, we expect to incur commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize or whether we commercialize jointly or on our own.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
•the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
•the costs, timing and outcome of regulatory review of our product candidates;
•the costs and timing of hiring new employees to support our continued growth;
•the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•the extent to which we acquire or in-license other product candidates and technologies;
•the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any; and
•other capital expenditures, working capital requirements, and other general corporate activities.
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Contractual Obligations and Commitments
The following table summarizes certain estimated future obligations by period under our various contractual obligations as of December 31, 2024 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:
| Payments Due by Period | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In thousands | Total | 2025 | 2026-2027 | 2028-2029 | Thereafter | ||||||||||||||
| Operating leases(1) | $ | 49,305 | $ | 6,135 | $ | 12,027 | $ | 10,811 | $ | 20,332 | |||||||||
| Purchase obligations: | |||||||||||||||||||
| Research commitments(2) | 53,364 | 53,364 | — | — | |||||||||||||||
| Total | $ | 102,669 | $ | 59,499 | $ | 12,027 | $ | 10,811 | $ | 20,332 |
(1) Refer to Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this 10-K for additional information on future minimum rental commitments under non-cancelable operating leases.
(2) Research commitments are primarily CRO agreements that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts included in the preceding table are limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee. In addition to the amounts above, as of December 31, 2024, the Company had remaining maximum research commitments of approximately $1,750, which are variable based on number of trial participants and contingent upon the achievement of certain milestones of the clinical trials covered under the agreements. Since the achievement of these milestones is uncertain and the timing unpredictable, the Company did not include the additional research commitments in the table above. If all related milestones are achieved, the Company expects these amounts to be paid over approximately one year.
In addition to the contractual obligations in the table above, under various agreements with third-party licensors and collaborators, we have agreed to make milestone payments and pay royalties and annual maintenance fees to third parties and to meet due diligence requirements based upon specified milestones. We have not included any contingent payment obligations, such as milestones, royalties, or due diligence, in the table above as the amount, timing and likelihood of such payments are not known. We have not included any of the annual license maintenance fee payments in the above table, as although the amount and timing are known, we cannot currently determine the final termination dates of the agreements and, as a result, we cannot determine the total amounts of such payments we will be required to make under the agreements. We do not anticipate making material annual license maintenance payments related to our license agreements in the next 12 months. For additional details on contingent milestone and royalty payments, see Note 10, "License, Acquisitions and Other Agreements", to the Consolidated Financial Statements.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the consolidated financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2, "Summary of Significant Accounting Policies," in the notes to our financial statements appearing at the end of this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Accrued Research and Development Expenses
As part of the process of preparing the consolidated financial statements, we are required to estimate accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service
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providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
•vendors, including central laboratories, in connection with preclinical development activities;
•CROs and investigative sites in connection with preclinical and clinical studies; and
•CMOs in connection with drug substance and drug product formulation of preclinical and clinical trial materials.
We base expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf as well as estimates of services and materials consumed by CMOs that manufacture drug substances and products on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Valuation of Forward Contract and Derivative Liabilities
We have accounted for certain consideration agreed to in connection with the Knopp Amendment as forward contracts and derivative liabilities. The fair value of these liabilities have been determined based on Monte Carlo simulations of Biohaven's share price, which requires judgment and assumptions on the volatility of our share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk as they are payable in either cash or a variable number of shares.
Our expectations of the volatility of Biohaven's share price at the reporting date could be materially different than our actual future volatility, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, "Summary of Significant Accounting Policies," to our consolidated financial statements appearing at the end of this Annual Report.